Career CFO vents her frustration over business, human capital, economics, social environment, culture, politics, and everything else; but always with a monetary twist

March 2013 posts

March 29, 2013

I remember a few years ago, during a business lunch, somebody was recapping an episode from one of the numerous crime series all networks are running to compete against each other. My head was preoccupied with the business purpose of the meeting, nevertheless I do recall that the murder plot turned on a discovery that one of the characters, a compulsive gambler, bet his classy wife's sexual favors in poker and lost. FBI questioned if the payoff actually took place. Of course, it did: the real gamblers are "men of honor." When asked how the pimped out wife handled it, the winner said, "She was willing, but not happy." I bet this is the best line the screenwriter who churns out this pedestrian crap has ever written!

Willing, but not happy... The state of mind applicable to so many situations. This is exactly how all corporate accountants feel about financial audits, lenders' exams, investors' due diligence, etc. Commercial and fiscal needs of our employers throw us at mercy of the outsiders: we are forced to carve out time from our main responsibilities and open ourselves up to various poking, probing, and testing. Oh, we totally understand the importance and the unavoidable necessity of it. Frequently, it's our own search for new financing resources that culminates in these proceedings. Yes, we are totally willing, but we are not happy to go through with it.

I devoted two whole chapters (29 and 30) of CFO Techniques to advising readers on how to deal with auditors, keep yourself focused on the ultimate benefits for the company, and minimize the pains of distraction and intrusion. It helps to remind yourself that your company needs it more than the one that sends people to conduct the examinations.

And I have to say, most of these specialists of prodding are well aware of the invasive nature of their jobs. They understand that a financial executive abides by their standards and accommodates all their requirements, because he wants good results, and that this puts a CFO or a Controller into a subservient position. Many auditors are very apologetic for the endless interruptions, inquiries, requests, follow-ups, etc.

Of course, there are always exceptions...

For the CFO with exposure to international measurement systems from this season's joke #2, the last stage of the bank's field exam included physical inventory counts at three locations specifically selected by the bank. This is habitually done by auditors and examiners in order to (a) establish the presence of various inventories and (b) verify the accuracy of the subject's records. Obviously, nobody at the audited company has any impact on the choices of locations, timing, or people sent to perform the task. In fact, the CFO, who every year faces a financial audit and three bank exams, never knows who the hell the counters (usually junior auditors) are.

This time was bound to be different. One of the locations the bank selected was the company's storage in Savannah, GA. A day before the scheduled visit the CFO gets a phone call. An agitated young man in the receiver tells her that he is from the bank's Jacksonville office and that, according to Google Maps, the drive is 2 hours and 40 minutes each way. "And it's Friday! This is outrageous," he says.

The CFO was perplexed: anyone who had dealt with these matters even for one month would know that she had nothing to do with the rookie's plight; that, if it was up to her, she would much rather avoid the scrutiny. Considering her executive position and professional status, she could've just hung up on this wimp. But she is the one with a sense of humor, remember? So, she asked the boy, "Well, what would you like me to do? Move the inventory to Jacksonville, or cancel your visit?"

March 25, 2013

I was standing there at Terminal 5 yesterday, listening to Alt-J performing their 2012 Mercury Prize winning album An Awesome Wave live, cheering with the rest of the audience at the first notes of each song in recognition of their sublime quality. And once again a familiar notion formed inside my head. It happens to me every time I experience something that momentarily separates my being from all the negative garbage in my life. I think, "If I didn't keep on, I wouldn't have received this gift, I wouldn't have come to know these songs, I wouldn't be bobbing in rhythm right now."

I claw my way through the long stretches of hard life, full of frustration and disappointments, from one moment like this to another. This is what forces me to continue - the hope that there is another wonder ahead. And when they come, I use them as my self-therapy: I imprint the intimacy of the experience in my memory and let it carry me over the next hurdle.

It's like mantra: If I didn't endure I wouldn't have exited the Bullet train onto the platform of Shuzenji station and felt my rusty armor melting away; I wouldn't have seen that astonishing photo my daughter took a few months ago; I wouldn't have watched Radiohead, The Mars Volta, Tool do their on-stage magic; I wouldn't have heard Andrew Bird's heavenly sounds in the Guggenheim and in the Riverside Church; I wouldn't have read new Egan, Carson, Cunningham; I wouldn't have stood in the middle of the Red Forest breathing the ancient clarity... And I wouldn't have been at Terminal 5 yesterday.

So, here is my personal tip for everyone who, like me, is overwhelmed with frustration and prone to desperation: find something powerful that can make you forget about the dread, look for opportunities to experience it whenever you can, and hold on to the sensory memory of each occasion for as long as the shittiness of this life allows you. And let's hope that the gaps between the moments of joy will not get any longer then they already are.

Acknowledgements:

I would like to thank my daughter for treating her mother as an equal and sharing all kinds of awesomeness. And thank you very much, the dude from Bumblefuck, IL.

"High school is closer to the core of the American experience then anything else I can think of."

Kurt Vonnegut Jr.

1922 - 2007

The Frustrated CFO Commentary:

This famous Vonnegut's little pearl of wisdom also makes an appearance in Jennifer Senior's article for New York Magazine Why You Truly Never Leave High School. I have to say that, for a cover piece of a popular periodical, it has a substantial amount of scientific references, citing deeply rooted correlation between our adolescence experiences and our personal as well as professional track records. I highly recommend it to everyone. To spike your interest, let me tease you with another quote - this time from the article itself:

"Why is it that in most public high schools across America, a girl who plays the cello or a boy who plays in the marching bank is a loser? And even more fundamentally: Why was it such a liability to be smart? ...High-school values aren't all that different from adult values. Most adults don't like cello or marching bands, either. Most Americans are suspicious of intellectuals. Cellists, trumpet players, and geeks may find their homes somewhere in the adult world, and even status and esteem. But only in places that draw their own kind."

By the way, in case you didn't know, the birdcage with an opened door was the last Kurt Vonnegut's drawing. He had it ready on the day he died. Underneath he wrote his name and the years of his life - just like I did under the quote above. Apparently, the man who wasn't afraid to break the literary canons was prepared to finally graduate from this high school of Life and fly away.

March 21, 2013

A bank's field examiner (read my previousjoke if you don't know who that is) comes to review books and records of a company in the NYC's Financial District.

The company leases space in one of those pre-furnished/pre-wired office suites setups with reception services, heavy-duty business equipment, and highly presentable conference rooms shared by various renters.

(Educational Side Note:It's a very profitable business. I believe Regus, headquartered in Luxembourg,is the largest player in the world. Started only in 1989, today it has presencein 99 countries, operating over 1400 centers. During my career I have dealt with Regus in Amsterdam, London, Moscow, Frankfurt, and New York.)

Those who have never been in such places don't realize that owners try very hard to maximize the rentable footage and fit into the space as many offices as they can without violating occupancy regulations. There could be, like, 120 companies, some of them consisting of a single employee, on one floor. And, therefore, during business hours it never feels empty or quiet. People are coming, going, walking by. The noise level is much higher than in a conventional business space: at any given moment one can hear at least three phone conversations and virtually participate in two neighboring meetings - one with a real estate attorney and another with an advertisement outfit specializing in cosmetics. It's pretty much your garden-variety beehive that sometimes gives an impression of being even more populous than it actually is.

One of the specific aspects of the office suites is the absence of companies' signs and name plaques - just the numbers on the doors. Yet, if you give the name of the company you are visiting to the doormen, they will direct you to the right floor. There, receptionists will not act surprise when you ask for a particular person and will call him or her up right away. (I mean, there is a reason why these businesses are doingwell.)

This is how the field examiner found her way to the company's CFO, with whom she was in contact after the assignment was scheduled. The auditor was set up in a separate room next to the CFO's office. Most of the electronic communications and data exchanges transpired between the two of them. The supporting documentation was provided by the CFO's staff. But in the hallways, reception areas, at the coffee station in the kitchen, through the open doors of multiple offices - everywhere the visiting woman saw, to put it mildly, quite a few people.

Please keep in mind, this is a little story about a person of numbers. Moreover, one of the key requirements of qualified auditors is their ability to gage the validity of the data in front of them. The examiners cannot possibly look at every recorded transaction - they make representative selections for documentary proofs; they construct trends; they look at schedules and statements; and they must apply analytical scrutiny and critical thinking to every number to make sure that it makes sense in the context of the examination's scope.

For example, it is expected of an auditor, who already studied a company's Profit & Loss statement, to understand the physical reality of annual rent expense of $85,000 (especially in NYC's Financial District) and annual payroll of $1 million. Call me crazy,but I don't think one needs to have a business degree and a CPA to interpret these numbers. I mean, any logical person can effortlessly come to the correct conclusion, right? One can only hope.

The field work was going very smoothly; the company's finance and accounting staff was well prepared and accommodating; the books were clean and the paper trail was flawlessly coherent. Yet, at the very end, when the auditor was reviewing prior exams'statistical questionnaires to see if anything required an update, all of a sudden she hit a stumbling block...

She walks over to the CFO with the papers in her hand, looking genuinely puzzled. She points out to a section in the questionnaire, "It says here that the total number ofemployees is 10." Now, it's CFO's turn to be baffled as she doesn't understandwhy this is so surprising, "Yes, that's correct. Ten total."

The field examiner looks into the CFO's face, still confused, "But I thought this whole floor was you..."

March 19, 2013

A lender's field examiner is sent to conduct a periodic review of a borrower's books and records.

These exercises are regular occurrences in, what I call, the balance sheet financing: a company pledges its assets, receivables and inventories foremost, against a line of credit. It's only natural that the financial institutions want to make sure, from time to time, that the collateral securing the loans, letters of credits, bank guarantees, etc. actually exists and is properly valued.

The banks used to be somewhat lax about it and satisfied themselves with quarterly internal financial statements and annual audit reports. Most of them would ask a client to undergo a field exam (it's always at the client's expense, by the way) only when the issue of a credit line's increase came up. However, the neverending tittering on the verge between recession and depression has changed things. The banks got burned by failing companies and defaulted mortgages. Those that couldn't recover their losses got acquired for peanuts. The remaining institutions got smarter and stricter. Nowadays, many lenders demand 2-3 field exams a year.

Most of these engagements are outsourced to specialized accounting firms, the rest are conducted by the banks' auditing departments. Either way, the examiners are constantly rotated - every time it's a new team, which is very prudent as far as the auditing standards go, but a pain in the ass for CFO's and Controllers of the companies being reviewed: you feel like a fucking parrot, delivering a summary of the company's business, its operating processes, and accounting procedures over and over again.

Many companies with significant receivables and inventories to pledge against credit lines of $10 million and up are, obviously, international businesses. The commercial globalization affects both the procurement of resources and the distribution of products. The ancient golden rule of market success still holds true: people try to buy where the prices are the lowest and sell where the prices are the highest.

Now, let me remind you, boys and girls, that the United States of America is a solitary customary-measurement island in the global ocean of the metric system. (Of course, it will cost billions to convert the entire American existence into the world-wide standard. Yet, I always thought that this clinging to the 18th century units is primarily a manifestation of our country's fundamentally puritan conservatism. But that's another joke altogether).

So, back to our examiner. On the second day of the assignment she comes to her designated point person - the borrower's CFO (the best practice to avoid someone saying something stupid, especially a CEO, is to restrict auditors' access to one person) and shows her an item on the inventory breakdown. "It says here that the cost is $1.05 per pound, but the supplier's invoice states $2,315 per em tee," she says, actually spelling the stated weight unit - mt.

Reportedly, at this moment the CFO felt like making a joke: "...You know what they call a Quarter Pounder with Cheese in Paris?/They don't call it a Quarter Pounder with Cheese?/No, they got the metric system there, they wouldn't know what the fuck a Quarter Pounder is."

But looking at the shellac-stiff blond hairdo of this Western PA resident, she changed her mind. The examiner looked utterly perplexed. So, instead, the CFO said, "This product is distributed here, in the States, and we keep the inventory records in pounds to match the sales units. However, it was purchased in Korea, so all of the supplier's documentation is in the metric system. 'MT' stands for 'metric ton,' which contains 2,204.62 pounds. So, if you divide the cost of one metric ton ($2,315) by 2,204.62, you will successfully convert it into the cost per pound ($1.05)." She writes everything down as she speaks, so that she doesn't have to repeat it again; at least not to this woman.

The examiner is extremely relieved and very grateful for the little lesson. The CFO (obviously in humorous mood that day) says, "Wait until you get to our liquid products. They are bought in metric tons, stored in gallons, and sold in pounds." "Oh, my God," the auditor looks mortified.

This is not an isolated anecdote. It's remarkable how frequently this happens. I personally never met an auditor who didn't require a tutorial on US vs. metric units conversion. I'm used to the appalling ignorance. The question is: why is it Ok to come with your tail between your legs and your tongue out, asking these stupid questions? Haven't these people ever heard about Google?

March 18, 2013

My mother, a doctor, always told me that one should be wary of psychiatrists, because they are just as crazy as their patients. I don't know about all psychiatrists, but it's definitely applies to Jung. I own his Red Book - going through it is a trip like no other. Then again, I think today it would be virtually impossible to find a truly sane subject for Jung's reformation. look around you - everyone runs in circles. It's a mad world.

March 15, 2013

I already wrote about subsequent-events analysis during audits in my post Ignorantly Insolent Bosses. Payments received from customers in January and February prove the validity of sales invoices outstanding as of 12/31. On the other hand, if you made a payment to a vendor on 01/07/13 for an invoice dated 12/08/12, which wasn't included into your accounts payable schedule - that's an error: both the liability and the related expense should've been recognized in 2012. There are subsequent events tests for all accounting cycles - really useful, powerful, mandatory for any audit. If done thoroughly, they can uncover all those overstated revenues and hidden costs that result in public companies' going out of business and their executives going to jail.

"If" is an operative word. Here is an actual story that happened during the week of 02/25/2013. An audit field work was under way at ABC International, Inc. A mid-size NYC CPA firm has been servicing this company for a few years, covering all corporate taxation needs as well as providing their independent opinion on the annual financial statements, which the company submits to their lenders, insurance underwriters, major suppliers, and other users. ABC has a very strong CFO and the auditors never find anything out of order in the company's books, records, and statements.

That's great, except that the audit quality should not be affected by the previous experience. Yet, this time around the CFO noticed that the audit manager seemed a bit lax - the test selections were smaller, there were less questions and supporting documentation requests. She was pleased: it shortened the exam time and also signified the auditors' confidence in her own work. Of course, there is confidence and there is negligence.

As soon as the audit started, the CFO asked her staff accountant to generate January and February schedules of sales, receipts, vouchers, and payments (the subsequent events), which were provided to the auditors with a copy to her. When the CFO reviewed the information to make sure that everything was in order, she has realized that the payment journal was drawn for the beginning of 2012 instead of 2013 (people do have a tendency of clicking keys without thinking).

The CFO immediately generated correct schedules and was about to email them to the audit manager, when she stopped herself. Why the hell didn't he notice it? Did he even looked at it? She decided not to do anything for the moment and see what would happen.

A couple of days later, the field work was completed. Two weeks later the CPA firm prepared the draft of their independent opinion and the footnotes, which were sent to the CFO for review (she told me she's received it today). Nobody ever mentioned the year old supporting data. Nobody caught it: not the auditing staff, or the manager, or the firm's quality control department. What quality? Please, don't make me laugh!

March 12, 2013

Ok, I honestly thought that my post about the foreign press conspiracy was the last thing I would ever write about Lena Dunham, HBO's Girls, the unjustified and pervasive brouhaha surrounding them, etc. But I was never joking when I said that merit and objectivity were placed very high on my hierarchy of values. They are so important to me that I can even look at a pool of shit, notice a few specks of goodness there, and effortlessly say, "This is a pool of shit, but those couple of things are quite good."

No, I didn't change my mind about Dunham's creations so far, especially the ones she's done on her own, without any help from other writing and directing talents; nor did I recant my opinion about the hipsters of media who buzz her up to the sky. But that doesn't prevent me from objectively acknowledging that the 8th episode of the second season, It's Back, was a remarkable breakthrough.

For the very first time, the show elevated itself to the level of truly generational significance. Because, if anything unites people in their 20s across geographical borders, nationalities, social origins, monetary standings, physical appearances, intellectual abilities, and creative talents, it's the unprecedented levels of anxiety, uncertainty, disorientation, and doubt (whether deeply hidden or worn right there on their faces) we have instilled in them.

Yes, WE, most of all the parents, but also teachers, employers, mentors, and public figures - we fucked them young bitches up with our twisted, contradictory, egomaniacal, and unfounded "guidance!" We tell them to pursue their dreams, yet want them to be financially self-sufficient. We tell them that they can achieve whatever they want if they try their best, while knowing very well that no amount of hard work and talent can compete with inroads based on personal connections. We tell them that a higher education leads to better employment, while openly complaining about our own jobs. We convince them that they are talented, unique, smart, and beautiful, yet cannot summon enough decency to show them the respect they actually deserve.

And so, here, in episode 8, we have a gallery of ALL the lead characters presented in nearly equal measure (already an outstanding feat for "Girls"), with their various manifestations of the generational malady:

Absent is Jessa, the eternal quitter, once again wandering away in search of the false thrills of a "real life" (beautifully written out in the previous episode into her already-showing pregnancy by the Six Feet Under alumnus Bruce Eric Kaplan).

The dashing, gifted, interesting, and earnest Adam, who theoretically should not have any qualms about getting a girl, admitting to his blind date (set up by the girl's mother), that he is so nervous, he's "sweating bullets." And we just know that he will fuck it up eventually.

The heart-broken Charlie, who drops his guitar and channels his pain into creating an iPhone app inspired by the obsessive pain inside him. Yes, he cashes in on it and, by "society's standards," he seems to be on the top of the world, but his sad eyes say otherwise. Moreover, we know all about the longevity of these startups.

The awkward Shoshanna, torn between the die-hard concept that college is supposed to be "the best time of one's life" (never mind all those NYU suicides) and the reality that she lives with an adult man whom she actually supports; scared that, whether successful or not, she will be just as lost as her friends after graduation.

The "adult" Ray himself, a self-proclaimed "homeless loser," who is smart and possibly talented (in something), but is trapped in the reality that he cannot find a way into the world, in which he believes he belongs. Yet, he still feels that he has a right to give advice to his fellow struggler "to stop being a cartographer, and start being an explorer."

Here is Marnie, standing in front of Ray, crushed by disillusion and failing to be "the most likely to succeed." Pushed to the edge, she admits that all she wants to do is to sing... and turns out she has a beautiful instrument for it too. Who could possibly know? She was hiding it from everyone.

And there is Hannah... This is the first show on television that unflinchingly uncovered a true portrait of OCD, without providing any comically cutesy cushions for the audience - just a straight blow to the head in all its ugliness. This is what it's really like - exhausting and debilitating, leaving you feeling powerless, reduced to a fucking puppet. This is also the first time someone showed with an admirable subtlety what it does to a girl when her loving father tells her: "You can't be anorexic - I've seen you in a bathing suit."

Considering the track record up to this point, it's hard to believe that all of it was fitted into one episode. It was written by three people - Lena Dunham herself, Steven Rubinshteyn (who served as Ms. Dunham's assistant for the two seasons), and Deborah Schoeneman (who worked as the story editor on the show). The rich material gave Jesse Peretz an opportunity to use his directorial skills for real.

And they did all this without any cheap tricks: no false dramatics, no incoherent story turns, no random bare breasts and asses. Instead, the episode was finally able to achieve a high degree of emotional nakedness.

Is this the beginning of a transformation? I hope so. Episode 9, On All Fours, (written by Dunham and Jenni Konner, directed by Dunham) is definitely an excellent follow up. I always said, that Lena Dunham is a capable person, who will get better as she learns from other talented people. But, on her own, she has a long way to go before she can truly live up to the hype around her. Will she learn humility and start giving credits where they are due? Who knows?

Interestingly enough, as reported by The Atlantic Wireon March 7th, the co-authors of the It's Back episode are not invited into the third season's writers' room. Moreover, everyone in that room has been fired. Only a few older pros will be allowed to share credits with Ms. Dunnam in the third season: Apatow, Konner, Kaplan, Heyward. Maybe it will help Lena to hold on to her "so young, so brilliant" status longer? These people will always be older than her. You know who else is pegged to participate? Dunham's parents. Reverse nepotism? Oh, well...

March 08, 2013

For a really long time now, I've been explaining (and so have other realists) that the overpricing of pretty pieces of paper (aka stocks, bonds, treasury bills, etc.) caused by the gambling games of cocaine-fueled, high-strung nitwits in high-rise brokerage offices and delusional day-traders glued to their hand-held devices has nothing to do with real production values, revenue growth, profit generation, and economy improvements.

It's shocking to me that people seriously accept the stock market "rally" of the past few months as a sign of tangible fiscal gains. The same goes for the rise in housing prices resulted from the unprecedentedly low mortgage rates artificially kept down by the US Treasury.

Don't you people understand that, just like with a terminal patient, this is a temporary remission before the downfall? You cannot take a candy wrapper that worth 1 cent and say that its price is $430 just because there is a schmuck who is willing to shell out that kind of money for it and hope that there is another idiot out there who will pay $450. Any, more or less logical, person should understand that the real value behind the candy wrapper is still 1 cent, regardless of how much money you pay for it. But apparently the general public is severely lacking common sense and logical aptitude.

You know what else they are lacking? The disposal income - the money to spend, the moolah to throw around, the dollars to buy the products of the very companies, whose stocks comprise these people's pension and college funds. If the consumer market contracts, how can companies generate revenues? How can a nation experience a recovery, when 99.9% of it is getting poorer and poorer by the minute?

This issue of the constant reduction of consumer spending is at the core of the economic disasters ahead of us. And apparently the public-stock billionaires, whose wealth is so easily added up and compiled into lists in the Forbes's offices, have already caught up with the reality - they are in high-gear disposal mode.

Please-please read this MONEYNEWS' article about Billionaires Dumping Stocks. In addition to listing the relevant verifiable facts, it also refers readers to the voice of reason - an economist with an impeccable prediction record who foresees a market adjustment as dramatic as 90%!!! And if you want a really full picture read the other articles linked below as well.